Many students and their families are locked in an unforgiving system: borrowing from the government, banks and private institutions in order to fund a higher education that often doesn’t match the price tag. Students across the country are walking away with an average of $25,000 in debt, only to be left staring at a bleak job market and dwindling prospects for financial improvement.
In an effort to ease the pain of loan repayment, President Obama recently unveiled a loan forgiveness program that would allow qualified loan-holders to pay only 10 percent of their discretionary income — any income 150 percent above the poverty line — toward repayment, with remaining debt forgiven after 20 years. The concept is an extension of the “Pay As You Go” loan forgiveness programs currently in place. Previously, the program required graduates to pay 15 percent with loan forgiveness after 25 years.
The program also allows for consolidation of federal student loans and other federally subsidized private loans given out through programs like the now defunct Federal Family Education Loan Program (FFELP). Consolidation of such loans would result in an average half-percent interest rate decrease. A decrease that only puts a bandage on a situation that requires stitches.
But there is a catch — or two — to this new program: It would not be effective until 2012, loans taken prior to that will not qualify, and to qualify to participate in the program, you must have taken out at least one loan in 2012.
Furthermore, loans taken privately through banks, and not through a federal program like FFELP, will not benefit from consolidation and loan forgiveness programming.
Other legislation currently sitting in Congress now would further reevaluate — and hopefully change — the way student loan debt is addressed. For starters, student loan debt cannot be erased by claiming bankruptcy — unlike credit card debt, for example — and many students and their families are left paying off staggering five- to six-digit debts. Proposed legislation, if passed, could change that.
Despite these well-intentioned moves toward alleviating student debt, what the government is offering is only a taste of the kind of reform that needs to occur.
Students and families trapped in non-federal loans are still left at the mercy of banks that ultimately profit through risky lending practices. If graduates cannot even escape the weight of student debt through bankruptcy, banks are able to maintain a hold on their loans and require payment even when an individual demonstrates he or she lacks the ability to do so.
The problem of student debt is much bigger than Obama’s recently approved plan. It isn’t necessarily the students borrowing from the government or the students with the subsidized loans who are taking the hardest hits — it’s the students who have become victims of private loans.
Student aid, high interest rates and inflexible repayment plans make private loans a kind of silent financial suicide. But with ever-increasing tuition costs, what options are students left with?
Debt is a profit generator for lenders. And insufficient loan forgiveness programs and bankruptcy loopholes that favor lenders are only continuing to promote such profit through debt.
Student debt is destroying the credit and financial well-being of graduates who are left looking forward to an unstable job market and promissory notes that serve as shackles.